Dec

31

I believe that Treasuries should not be even considered at these prices. I see a better opportunity with corporate bonds as investors will switch from low-yielding Treasury bonds to high-grade corporate debt. It’s early to say that credit is finally back, but the LIBOR (London Interbank Offered Rate) went considerably down from recent highs. In September, investment grade bonds plunged after the collapse of Lehman Brothers. Now they have recovered a lot from their lows but the yield spread with Treasuries is still very big. As credit markets normalize, the economy starts to recover and risk taking is resumed this spread will be reduced. Partially because of the huge amount of government bonds that will be issued to finance debt that will finally bring interest rates higher. But also because investment grade bonds will represent a good investment opportunity as general conditions improve at the expense of low yielding Treasury bonds.

Jeff Rollert responds:

We were +95% in treasuries for much of the year.

A more important question is are the events of Q4 are likely to continue in the near future? That is something money can be made from.

My wife an I went to see the movie Australia recently. In it, a boy stands in front of a stampede and looks the lead bull in the eye in an attempt to keep the heard from going off the cliff. Right now, there are many alpha males charging towards multiple cliffs. I sure hope there is a brave one, and they see the boy in real life.